International Accountant 127

China

Business strategy in China

The recent changes in China following the abandonment of its zero-Covid policy have had significant impacts on businesses. Brian Blömer (Moore –MS Advisory) explains how to reassess

your business strategy in China and examines four strategic moves to optimise your business performance in China when considering current market conditions.

firms need to measure their impact to embrace the benefits that having a truly diverse workforce can bring.

Financialplanningandanalysis

Ready for the year ahead?

Equality,diversityandinclusion

A vital issue for us all

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What has equality, diversity and inclusion got to do with you? All the research and evidence that is produced by academics and other researchers shows that we have still not grasped the value that having diversity in all aspects of business brings. Ranjana Bell MBE (rba Equality and Diversity) asks how diversity affects both you and your business, how we can build a more inclusive community, and what we can learn from geese.

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Diversity

Measuring the impact

There is a concerning gap emerging between the number of companies that are carrying out diversity, equity and inclusion initiatives, and the number which are measuring the success of them. Rachael Kinsella (iResearch Services) explains how accountancy

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Financial planning and analysis has taken a front seat in organisational importance, expanding its area of influence with cross-departmental implications. Dr Björn Schmidt (Jedox) examines the top seven trends impacting upon financial planning and analysis in the year ahead.

Researchanddevelopment

Let’s get fiscal

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Understanding R&D tax claims eligibility and providing clients with a trusted R&D tax service is readily achievable and doesn’t need to be a complex or costly undertaking. Mike Dean (Whisperclaims) explores how it is a potential revenue stream and value-added service that cannot be ignored.

Auditing

Clearing up the confusion

Steve Collings (Leavitt Walmsley Associates Ltd) explains when paragraphs relating to Emphasis of Matter and Material Uncertainties Related to Going Concern paragraphs should be included in auditor’s reports

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Contributors to this issue

Embracing equality, diversity and inclusion

Iam the Founder and Director of rba Equality and Diversity, and am delighted to have recently been appointed to the AIA Council. I know that the issues of equality, diversity and inclusion are truly important to AIA. They want to work with their members to help and encourage them to adopt these crucially important standards – and also to make sure they are reflected in their own working practices in the Association.

‘Equality, diversity and inclusion’ is not just a box that businesses need to tick to complete their administrative ‘to do’ list. Every employer must do their utmost to create inclusive workplaces, where all employees feel valued. We must all build our businesses to promote more women, Black and ethnic minority workers to senior positions, to make adjustments for people living with disabilities, and to be considerate of those with poor mental health.

But it takes a forward looking employer to realise that employees who feel valued are more likely to ensure that customers have a positive experience. In my article on page 14, I’ve written about the real opportunities that adopting these standards can bring – and some of the obstacles that stand in our way to achieving a truly equal workplace.

This isn’t going to be a quick and easy process. We need to create safe spaces for difficult conversations, and sometimes we will need to hear some hard truths. But that is the only way for us to really understand the issues involved and move towards a fairer society.

I’m happy to report that we are making some progress. In some recent research of professional services employers by iResearch Services, 75% of those surveyed had formal equality, diversity and inclusion policies in place (see Rachael Kinsella’s article on page 17). However, only three quarters of those firms are currently measuring the success of those programmes. Unconscious bias results in the continued exclusion of historically marginalised groups of people, often because of their gender, ethnicity, or culture. We must evaluate our initiatives to make sure that we are not just paying lip service. We must measure our diversity programmes to make sure that – in the end – all our people really count.

Archbishop Desmond Tutu, who so sadly passed away in 2021, could not have put it better when he said: ‘If you are neutral in situations of injustice, you have chosen the side of the oppressor. If an elephant has its foot on the tail of a mouse and you say you are neutral, the mouse will not appreciate your neutrality.’ It is a lesson that we all can learn from. I encourage you to embrace equality, diversity and inclusion to build a stronger, happier and better world.

Brian Blömer is Director at Moore and leads the Corporate Services team, focusing on market entry and corporate establishment of foreign companies.

Steve Collings, FMAAT FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd. Steve became a Fellow of the ACCA in 2010.

Mike Dean is the Managing Diector at WhisperClaims. He is passionate about the digitisation of business processes, especially advisory services.

Rachael Kinsella is an FCIM Chartered Marketer and editor at iResearch Services, specialising in professional and financial services editorial.

Dr. Björn Schmidt is CFO of Jedox, helping to propel companies in technology and SaaS to imagine and achieve their full potential.

Ranjana Bell MBE, Guest Editor

BRIANBLÖMER

STEVECOLLINGS

MIKEDEAN

RACHAELKINSELLA

DR.BJÖRNSCHMIDT

Critical skills shortage in accountancy

Audit fees paid by FTSE 100 break through £1 billion threshold

Accountants are the ninth most sought after recruit amongst all careers in the UK, according to a report on skills shortages by recruiter Search, with a recruitment gap of 22%.

On average in accountancy and finance, it now takes 3.8 months to make a new appointment. The accountancy and finance industry also struggles the most at making senior hires with 38% admitting to finding it difficult to source business leaders.

The skills gap is the space between what firms are looking for in new hires and the skills the upcoming cohort of accounting professionals can bring to the table. The top three most sought after skills amongst accountancy recruits, according to the report, are adaptability, self-management and teamwork.

The acute shortage of qualified accountants will also worsen in Ireland, as Irish businesses and firms struggle to access the talent they need to support the economy. President of Chartered Accountants Ireland Pat O’Neill stated: ‘Anecdotally, the talent pipeline problem is clear right across the profession, from practices of all size to industry, resulting in attraction and retention challenges, not just in Ireland, but around the world, and we are working with global partners to tackle it. It is driven by a huge increase in competition for talent from nonaccounting roles; but also a real gap in perception of what accountants actually do.’

The fees that have been paid by FTSE 100 companies to audit firms have grown from £975.38 million in 2020/21, up to £1.01 billion in 2021/22, breaching the £1 billion barrier for the first time, shows new research by Thomson Reuters Confirmation.

The fees FTSE 100 companies paid for audits increased by 9% in the past year to £869.6 million in 2021/22. However, the value of fees paid by FTSE 100 companies to their auditors for non-audit work decreased by 10% to £148.6 million in the same period.

The Financial Reporting Council (FRC) has urged audit firms to raise their fees and invest more time and money into their audit work, to ensure that audits are carried out to the highest possible standard. The FRC has been concerned that accounting firms may be using audit work as a loss leader, deliberately undercharging clients. There has been a concern that by offering audit services at low prices, firms were winning contracts by undercutting competitors and then

cross-selling more profitable tax and consulting services.

The FRC has also called on the Big 4 to separate their audit practices from their consulting arms, in a bid to improve audit quality. The regulator hopes that separating these functions would lessen the incentive for firms to lower audit prices to secure lucrative tax or consulting contracts.

The FRC has capped the scope of nonaudit work a company’s auditor can do alongside the audit, to 70% of the average fee for the last three audits. As a result of this, auditors have moved their focus away from non-audit work for their audit clients.

Greater regulation of the audit sector could lead to further increases in fees. The new International Standards on Quality Management 1 will require audit firms to prove they are adhering to higher standards of audit quality. For example, they will need to introduce stricter risk assessment and a range of new quality processes into the work such as ‘root cause analysis’.

©Getty images/iStockphoto

©Getty images/iStockphoto

A third of global economy faces recession in 2023

A third of the world economy will be in recession this year, according to Kristalina Georgieva, MD of the International Monetary Fund (IMF). She said that while some countries will technically not be in a recession, ‘it would feel like recession for hundreds of millions of people’.

Georgieva said 2023 was set to be a tougher year than 2022, as the three major economic engines – the US, EU and China – are experiencing economic slowdowns. Countries across the globe are battling the fallout from the war in Ukraine, surging prices and higher interest rates, she said.

‘We expect one third of the world economy to be in recession,’ Georgieva told the CBS news programme Face the Nation. ‘For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth,’ Georgieva said.

China is experiencing a surge in Covid-19 infections and has scrapped its zero-Covid policy, lifting many social restrictions. ‘For the next couple of

months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative,’ she said.

Georgieva added that the US was the ‘most resilient’ of the world’s leading economies and said it may be able to avoid falling into recession.

Meanwhile, the UK is set to experience one of the worst

Two in five commercial properties are underinsured

Some 40% of the UK’s commercial properties are underinsured, according to research by insurance broker Gallagher. The company found that the shortfall of underinsured properties was an average of 43% against the rebuild value covered by their insurance – and where there is a gap, businesses are likely to be liable to pay the difference.

Almost all (96%) of the claims managers questioned for the survey said there has been a rise in the number of underinsured properties in the past 12 months, partly due to the rapid inflation in the cost of building materials. Government figures published in October 2022 showed a

16.7% increase for ‘all work’ year-on year, with the cost of steel up by 13% and the price of timber up by 35% year-on-year in 2021-2022.

Gallagher’s research found that 65% of business leaders who own their premises have not reviewed their commercial property insurance during the past year, indicating that many could now be at risk. Some have gone even longer without looking at their policy, with one in six (16%) not having reviewed their insurance at any point in the last five years.

Gary Fletcher, Gallagher’s managing director for the south in the UK, said: ‘Property underinsurance is

recessions and poorest recoveries among the G7 countries in 2023, according to a recent survey by the Financial Times . The newspaper polled UK-based economists, who cited inflation, higher interest rates and the conflict in Ukraine as the main reasons for their pessimism. Government policy designed to control inflation will also contribute to the downturn, they said. They also anticipate that household incomes will be reduced, with higher borrowing rates adding to the impact of soaring food and energy prices.

Forecasts compiled by Consensus Economics for the Financial Times show UK GDP shrinking by 1% in 2023, compared with a contraction of just 0.1% for the eurozone as a whole and growth of 0.25% in the US.

at a record high currently because of issues such as inflation and the rising cost of materials.

‘However, business owners also often make the mistake that the valuation of the property is based on what it would sell for and, as property prices haven’t changed a great deal over the last year, that the valuation is the same. In fact, the valuation is based on rebuild costs which have unfortunately risen dramatically over the last year.’

The most common reasons cited by business owners for not reviewing their property valuation was thinking nothing had changed since last time they checked (29%), trying to keep insurance costs down while inflation is causing budget constraints elsewhere (23%) and simply being too busy with other priorities (20%) to think about it.

©Getty images/iStockphoto

AIA NEWS

SUSTAINABILITY

AIAreaffirmsits commitmentto sustainability

As a leading force in the accountancy profession, providing a strong voice, superior qualifications and unrivalled support for SME accountants worldwide, AIA is pleased to reaffirm its commitment to embedding sustainability at the core of its strategy.

On 26 January, AIA council members attending the first post-Covid faceto-face council meeting discussed the critical importance that education will play as we act in the public interest to provide our members with the tools to undertake meaningful change.

Shahram Moallemi, AIA President, commented: ‘ESG is about more than ticking boxes; it is about making a difference. As a professional accountancy organisation, we have made great strides to do this by placing sustainability at the heart of our operations and working with members to deliver sustainable long-term growth. Sustainability has become increasingly critical for organisations globally to remain both relevant and competitive in an ever-changing world. Embedding sustainability practices in AIA’s strategy is essential to meet evolving consumer demand and regulatory requirements.

AIA is actively working with industry regulators to demonstrate how our operations are sustainable, whilst promoting sustainability through education to our global membership. We are committed to the continual review of our processes, procedures, and strategy in line with ESG standards.

AIA council member Sharon Jandu awarded an OBE

AIA council member Sharon Kaur Jandu has been awarded an OBE for her services to international trade.

Sharon was recognised in the New Year’s Honours list, and is among the 1,107 people recognised in the first honours under King Charles III.

Sharon is the founder of the Northern Asian Powerlist and Northern Asian Power Think Tank, and a director of the Yorkshire Asian Business Association. She is also part of a trade mission heading to India in the first quarter of 2023.

Sharon Kaur Jandu OBE said: ‘It is a privilege to have been given an OBE for services to international trade. The one thing that I really do feel proud of is how we’ve really brought the community together.

‘If you look at the Northern Asian Powerlist, it has got people

from all different backgrounds and parts of the community, from businessmen to social changemakers who work with women fleeing domestic violence. They are all in the same room on the same platform, celebrating the success of the community.’

Philip Turnbull, AIA Chief Executive, said: ‘I want to congratulate AIA council member Sharon Jandu for being awarded her OBE. It is great to see her being recognised for the work she does through her roles at Northern Asian Powerlist, Northern Asian Power Think Tank, and Yorkshire Asian Business Association.

‘She is an asset to AIA’s Council, strengthening it with her experience and understanding around equality, diversity and inclusion.’

Scrutinising sustainability and ESG reporting at AIA Examiners’ Conference

On 27 January 2023, the Examiners’ Conference connected AIA’s academic team from universities across the world for a wide-ranging and interactive event, including the opportunity to hear from the internationally recognised Director of the Pentland Centre for Sustainability in Business at Lancaster University, Professor Jan Bebbington

Jan’s research focuses on issues that emerge at the intersections between sustainable development concerns and accounting scholarship and she has published on topics such the sustainable development goals; sustainability science; motivations and rationales for standalone reporting; carbon accounting; sustainability assessment; and accounting education.

She is also part of a long-term collaboration at the Stockholm Resilience Centre and The Centre of Ocean Solutions at Stanford University, providing insight into the differences between accountability and stewardship, as well as the issues in establishing organisational control over supply chains and reporting meaningfully on performance.

At the conference Jan Bebbington said: ‘Sustainability used to be a sprinkling of a discussion but now it is at the forefront of everyone’s mind due to the great acceleration; an increase of people has resulted in accelerated pollution. Climate change is the key on which everything moves and when the climate changes everything else does too.

‘Externalities are persistent and are creating system tipping points, which creates the conundrum of globalisation and growth. Not keeping pace with the globalisation of minimum social and ecological maximum standards with growth is making it worse, but current economic system is unable to flourish without it.

‘The Green Deal and Sustainable Finance Disclosure Regulation is in place to steer finance flows towards

sustainable investments. This includes the Transition Plan Taskforce Disclosure Framework – a global investment and engineering grade physical climate risk analysis report, which asks companies to commit to net zero but do it through a strategic plan. They must explain specifically what the business is going to do and change, as well as the expected timelines to reach net zero.

‘Accounting is critical for organisational control. We are masters of our own destiny – we choose what we do!’

GreenFinanceEducationCharter

As signatories to the Green Finance Education Charter, AIA is committed to embedding green finance and sustainability into its Recognised Professional Qualification at all levels, alongside the continued professional development of accountants. Each of the signatories acknowledge their collective responsibility to deliver Article 2.1c of the Paris Agreement and the UN Sustainable Development Goals.   Comparable national and international reporting standards are key to ensuring that green finance and sustainability are effective tools for investors and accountants alike. AIA works effectively in the public interest to ensure that standards are fit for purpose and applicable to its members, including emphasising the importance of effective reporting for SMPs and their SME clients. For example, we have worked with partners including fellow European Federation of Accountants and Auditors for SMEs (EFAA) to respond to the European Commission’s introduction of European Sustainability Reporting Standards and a new Corporate Sustainability Reporting Directive

Building on work to expand guidance for members following the introduction of Green Finance and Sustainability Insights, AIA recently provided a series of workshops, led by council member Dr Peter Ellington, to ensure that

members are ready to operate in a low carbon/net-zero world. The interactive workshops looked at issues which are being faced not only by companies but by individuals, including climate change, sustainability reporting and social inequalities and why firms may not be taking them seriously.

We rely on the support of AIA examiners, moderators and tutors, as well as AIA council members, to ensure that our qualifications are fit for purpose and that we act in the public interest. Working with our academic team means we can ensure that the AIA Recognised Professional Qualification is maintained at the appropriately high standard and that we meet our regulatory requirements. The conference also attended by the Financial Reporting Council, reflecting the importance of sustainability reporting with professional accountancy and audit qualifications.

The 2023 AIA Examiners’ Conference also included input from AIA’s partner BPP Learning Media, giving key insight into how learning materials can reflect advancements in sustainability reporting and a demonstration from AIA’s online learning and assessment platform partner Eintech

© Professor Jan Bebbington

Professor Jan Bebbington

Good Business Charter accreditation renewal approved

AIA are pleased to announce we have received successful re-accreditation to the Good Business Charter, which gives recognition for responsible business behaviour.

The Good Business Charter is a simple accreditation which organisations in the UK can sign up to if they have shown responsible business practices. It measures behaviour over ten components: real living wage, fairer hours and contracts, employee well-being, employee representation, diversity and inclusion, environmental responsibility, paying fair tax, commitment to customers, ethical sourcing, and prompt payment.

AIA met all ten commitments to receive Good Business Charter accreditation, and will continue to work

to these components moving forward. Good Business Charter accreditations are open to private sector, public sector and charities of all sizes, including a streamlined version for organisations with 50 employees or less.

The Good Business Charter is an initiative of the Good Business Foundation, a charity registered in England and Wales. The CBI (Confederation of British Industry) and the TUC (Trades Union Congress) both have trustee representation on the board of the Good Business Foundation to ensure that the voices of business and employees are heard. The Good Business Foundation worked in collaboration with the FSB (Federation of Small Businesses) to develop a streamlined version of the accreditation

which is accessible to organisations with 50 employees or less which was launched in January 2021.

David Potts, AIA Director of Operations said, ‘The Good Business Charter improves accountability amongst businesses, especially SMEs. AIA believe in the Good Business Charter principles and follow them as a business, and having this accreditation recognises our responsible behaviour.’

Making it all add up

So, your first decision has been made already; your love of all things numbers-related has won through, and you are starting on the journey to becoming a fully qualified international accountant. It is fair to say you haven’t taken the easy option, as the life of an accountancy student can at times be challenging as you juggle to maintain a healthy work/life balance. Many however would say you have taken the right option, after all…

Indeed, as Warren Buffet, business magnate, investor and philanthropist, expressed it, ‘Accounting is the language of business.’

Fivetoptips

As an accountancy student, you will be looking forward to achieving your professional accountancy qualification before embarking on a career in the finance and accountancy world, or you may be looking forward to achieving your professional accountancy qualification so you can further enhance your current career opportunities. Either way you need to know exactly what it will take to become a qualified international accountant?

The purpose of this article is not to fill you with fear and put you off the profession, but instead to make sure that you are aware of the commitment you’ve made, and to ensure that you get the maximum benefit from choosing to join the thousands of other international accountants around the world.

At the very least you will already be aware that you need to sit exams, and therefore there will be a necessity to study. But is there more to it than that? The quick answer to that is yes! But don’t worry, we will be with you every step of the journey, offering advice, guidance and support. For this reason, we have outlined five key top tips which, if followed, will provide you with the basis to undertake a smooth and rewarding journey to becoming a qualified international accountant.

1.UtiliseAIAAchieveAcademy

AIA Achieve Academy is a fully integrated online learning platform designed to provide our students with a structured programme of study for all papers within the AIA professional qualification. The programme includes learning and practice workbooks, study text, practice questions, live workshops and much more… You have this wonderful resource at your fingertips, so please take full advantage of it.

As an accountancy student, you have embarked on a journey toward professional qualification that can be challenging. Here are some tips to help you make it a smooth and rewarding process.

Fivekeytoptipswillprovideyou withthebasistoundertakea smoothjourneytobecominga qualifiedinternationalaccountant.

‘The structure and features on the online Achieve Academy are excellent, to say the least. I am able to track my progress on the study texts and online tests which mirror the real exam questions. The feedback from the online tutors is excellent, helping me to navigate different stages of my studies and keep up with sessions in time for the exams.’ (Current AIA Achieve Student)

2.Entertheexamsattheearliestopportunity andsitthem

You should always be looking to enter the exams at the earliest opportunity. We offer two exam sessions every year in May and November, so as soon as you register as a student you should enter the next available exam session. Make the most of the energy and enthusiasm you have when you sign up and give yourself a goal to work towards; otherwise you won’t be able to focus your mind on your studies. Plus, let’s face it, if you don’t enter the exams, you’ll never pass. You’ve got to be ‘in it to win it!’

STUDENTS

3.Keepsittingtheexamsateverysession untilyouqualify

You’ve worked hard and you’ve sat the exams; now you can take a quick breather before you dive back in. Once the exam results are released, whether you’ve passed or failed, you should be entering the exams for the next session.

If you’ve passed, keep up your positive momentum, you’re one step closer to your goal.

If you failed, think of it like riding a bike. If you fall off, you need to pick yourself up, dust yourself down, get back on and give it another go. Don’t lose heart, failing is a part of life and it makes us stronger and wiser. And always remember that AIA are on hand - either by email on exams@aiaworldwide.com or telephone – to provide assistance wherever possible.

4.Gainworkexperienceandkeeparecord ofit

There’s more to qualifying as an international accountant than sitting the exams, and you’re not fully qualified until you have also gained three years’ work experience, or what we call Initial Professional Development (IPD).

You can gain your work experience before, during or after studying for the exams. If you can, though, it’s a good idea to be working in accountancy while you’re studying, as this will help you to apply what you’re learning in practice and should make it an easier process to grasp.

It’s also easier to fill your IPD record in as you go along, rather than trying to remember what you did three years ago!

For a complete overview on IPD go to: www.aiaworldwide.com/insights/student-insights/ ipd-requirements/.

5.ApplytobecomeanAssociatemember

You have passed your exams and have your three years’ IPD under your belt. You are eligible to apply for your Associate membership, so you can call yourself a fully qualified international accountant. Congratulations, your hard work has paid off!

Actually, wait a moment! Your learning doesn’t stop there. As an international accountant, it is essential that you undertake Continuing Professional Development (CPD) throughout your career, and you have to continue to pay your annual subscription in order to remain as a member and call yourself qualified.

So that’s it. Yes, student life can be a challenge at times, but if you remain calm, focused and follow our top tips, you should enjoy a smooth and highly rewarding journey to becoming a qualified international accountant. And remember our Membership Services team are always on hand and happy to help! ●

Business strategy in China

The global economic outlook continues to be challenging, with energy supply uncertainty in Europe along with rising inflation and the lack of forecasted growth. However, with the Covid-19 restrictions China upheld throughout 2022, the property market crisis and other issues arising, there are additional headwinds to be faced by businesses operating in China. In this article, we will examine four strategic moves to optimise your business performance in China when considering current market conditions.

BrianBlömer DirectorCorporateServices, Moore–MSAdvisory

Thecurrentmarketenvironment

While the fallout from the pandemic includes slowing down economic growth worldwide, in China the zero-Covid policy had presented a challenge that obstructed recovery. This has also had a knock-on effect on importers and exporters, supply chains, foreign direct investment and businesses operating locally.

Businesses are now facing a myriad of challenges, including currency volatility, supply chain disruptions, higher freight costs and port constraints. Supply chain disruptions and

The recent changes in China following the abandonment of its zero-Covid policy have had significant impacts on businesses. Brian Blömer explains how to reassess your business strategy in China.

restricted port access means longer time lags to land products, making the import process more costly and requiring that importers ensure adequate working capital for longer periods. Higher freight costs exacerbate the financial risks for any business.

As one of China’s key business sectors historically, the decline of the Chinese property market and the current crisis it now faces has kept investors wary of aggressively investing in the Chinese market. Since 2020, the downturn of the real estate market has had a severe impact on operators in the region and caused a rapid slowdown in investment. Furthermore, a lack of willingness for potential homebuyers to purchase and tighter restrictions on mortgage lending has led to a knock-on effect impacting stakeholders in China and beyond.

Challenges that arise can negatively impact businesses but can also give way to opportunities for organisations to reassess business strategies and possibly to readjust, streamline and consolidate for better results. While some businesses may experience hardships, others may strive. Here are four different approaches your business can take during this period.

1.Restructuringyourentity

Successful businesses are built on a strong foundational strategy and clear business objectives, so changes to strategy and objectives may be required for businesses to adapt successfully. Amidst the outbreak of the Covid pandemic and with multiple geopolitical issues arising, many businesses have placed emphasis on being agile.

For businesses in China, this can include a restructuring or downsizing of the business during tough or unpredictable times. As such, businesses should refocus their core competencies and reign back on expansion and further investment to ensure that clients have specialist skills to rely on.

Altering the company structure or details of the company’s registration can help in staying agile. Whether your company is looking to decrease the registered capital, increase it (if you see an opportunity), change shareholders or alter the business scope, this can all be done easily according to due process.

Followingthecorrectprocedure

Importantly, any change in company structure will need to be amended and relevant details will be required to be approved and recognised by administrative processes in China. In particular, this includes: the scope of the business; the registered personnel within the business; and any change of the registered address of the business. Any revisions to registered capital and total investment also need to be detailed.

Some of the procedures for a change in the company structure generally include:

● preparation of relevant documents:

● Administration for Market Regulation (AMR) application form(s), amendment of the Articles of Association and board/ shareholder decisions;

● certain changes require the shareholder to prepare and obtain legalised company documents from the headquarters abroad;

● update the company’s record with the local AMR;

● update the company’s records with the Tax Authority;

● update the company’s record with its bank(s); and

● update company records at the Customer Authority (if applicable).

These will be subject to approval by Chinese authorities.

2.Liquidation:windingupcompetently

There are number of reasons for businesses to consider liquidation. It may be as simple as not gaining traction in the local market, a change in

the market environment or a division of a business may become obsolete. While businesses may want to stop operations, they are in fact required to follow the correct liquidation process.

Complianceiskey

Once the company has decided to cease operations in China, it is imperative that appropriate administrative processes are followed. Non-compliance can cause negative legal implications resulting in monetary fines and penalties, blacklisting for personnel and irreparable reputational damage, along with the probability of not being able to operate in the country either for a number of years or for the foreseeable future.

In order to obtain approval to deregister the Chinese entity, these are some of the key points that need to be considered and managed carefully prior to any liquidation procedures:

● Termination of labour contracts: Each employee will need to reach a settlement with the company in line with Chinese law.

● Ongoing legal disputes: All ongoing legal conflicts and cases need to be resolved satisfactorily. Proof is required prior to any liquidation procedures commencing.

● Annual Statutory Requirements: This audit is one of three statutory requirements that must be carried out each year by all foreign-owned entities in China. Subsequently, general inspection with regards to tax filings and audit reporting will be performed by tax authorities during liquidation.

● Registered address: A company is required to have an accurate registered address in China until the license is retracted during the liquidation process.

You can see a complete overview of the liquidation process in China in our Company Liquidation White Paper at bit.ly/3HfDttL

Expert help will be required to ensure that the process is managed efficiently. It is also important to have an established partner locally who understands the regulations and processes, as it may take up to 12 months or longer.

3.Applyingfordormancy

Some businesses may not want to exit the market, but rather just suspend their activities in the Chinese market for the short term. If a company decides not to liquidate, they will still be required to fulfil their ongoing compliance requirements.

Therefore, in order to reduce any unnecessary costs and keep the functioning costs as low as possible, a business can apply to become a dormant company.

Ensuringofficialdormancy

Before 1 March 2022, companies were not able to switch their status to dormant. However, after a successful trial run, companies are now able to apply for dormant status, which is available to six different categories of businesses (see bit.ly/40boREn).

4.Anopportunityforgrowth

The EU Chamber in China position paper indicated that European businesses are not leaving China, but instead are diverting some investments to other markets to mitigate risks. The diversion of investment can primarily be attributed to policy shifts and reduced confidence in the market; however, this does not apply to all businesses. Even though many organisations have had setbacks due to supply chain disruption, Covid-19 and travel policies, some businesses have had more opportunities presented to them while others have taken this as an opening to secure strong and profitable partnerships.

It is worth noting that companies with scale and diversification prospects tend to be more resilient during challenging times. With economic recovery set to be an extended process, it may be an opportunity for established businesses to gain market share and consolidate their presence in China. It can also be an opportunity for smaller players to take place of the gap in the market which has been left by outgoing or downscaling enterprises.

PlanningforGrowth

With growth and upscaling comes fiscal responsibilities. It is crucial that foreigninvested enterprises in China ensure that their financial compliance in accounting and annual audits are in line with Chinese requirements to remain operational.

Furthermore, all companies are required to meet their tax obligations and complete monthly/quarterly tax filings as set out in Chinese tax legislation. While upscaling activities is familiar to many businesses, the administrative side may often not be and remains a complex landscape to navigate, which is why many successful businesses have a partner in China to assist with this. ●

At Moore – MS Advisory, we have a keen interest in helping navigate businesses through the financial and administrative system. We aim to make sound recommendations to help your business grow and succeed in China. Find out more in our ‘Complete guide to doing business in China’ at bit.ly/3jfTVlK

Author bio BrianBlömerisDirector atMooreandleadsthe CorporateServicesteam, wherehepredominantly focusesonmarketentry consultationandcorporate establishmentofforeign companies.

A vital issue for us all

Ranjana Bell MBE asks how diversity affects both you and your business, how we can build a more inclusive community, and what we can learn from geese.

RanjanaBellMBE Director,rbaEqualityandDiversityandAIACouncilmember

EQUALITY, DIVERSITY AND INCLUSION

Ranjana Bell MBE, Founder and Director of rba Equality and Diversity, has been appointed to the AIA Council. She focuses on mainstreaming equality, diversity and inclusion (EDI) by creating ‘safe spaces’ for open and honest dialogue between individuals, be they staff, strategic leaders, volunteers or local politicians. She has over 40 years of experience in the field of EDI, having worked across public, private and voluntary sectors over this period of time. Ranjana shares with us her experiences in this area, and how we all work to build a stronger society.

What has equality, diversity and inclusion got to do with you? All the research and evidence that is produced, by academics and other researchers, shows that we have still not grasped the value that having diversity in all aspects of business brings.

Abriefpersonalhistory… RanjanaBellsharessomeofthe experienceswhichledhertofight foramorediversesociety.

My journey to fight injustice began when my mum, my brother (aged six) and I (aged four) joined my dad in London in 1955, having left India three weeks earlier to travel by ship to join him. My dad had a vision that by fully integrating the family into English culture, our life would be full of good fortune. He so wanted to be English that we lost our Indian identity as we tried to blend in. I could share many stories about how his heart was broken by his and my mum’s experiences.

I saw and felt their pain from an early age. My brother and I were separated from our parents when we arrived in London. They could not find accommodation where children would be allowed to join them so my brother and I joined the many Black and Asian children in the unregulated homes that were being offered by rich families with big houses, whilst our parents tried to find a place for us to live together. My four year-old self has never really recovered from those feelings of abandonment, when I was isolated from everything I knew.

Eventually, after what felt a lifetime, we rejoined mum and dad and started a completely new life attending school, being seen as ‘exotic’ by people in the street and frequently touched and talked about as if we were not there! I heard terrible stories about how my mum was treated and got very angry when I saw her cry. Turning the other cheek never worked for me, so this is when I think my passion for fighting injustice began.

I just couldn’t and still cannot let things go! Silence is not an option to me. It is our silence that allows the ‘discriminators’ or ‘oppressors’ to win. I have got myself in trouble many times for speaking out. The latest attack on people like me who won’t be silenced is to call us ‘woke’. I am proud of being woke (or aware). To me, this means I live my life caring for others and standing up for justice for everyone, so I will continue to be very proud.

Established in 2011, Inclusive Employers is the first and leading membership organisation for employers who are committed to prioritising inclusion and creating truly inclusive workplaces. In inclusive workplaces, all employees are valued and contribute towards the success of their organisation. Below, I share some of its guidance on the business case for diversity and inclusion (see bit.ly/3J8WS1T).

InclusiveEmployers:thebenefitsof diversity

‘Why is diversity important for business? Some of you may be wondering why we are still asking this question; haven’t we had this conversation? Maybe, but it’s important to take time to reflect and recalibrate so we are

Wecouldlearnalotfromgeese….

When you see geese flying in a V formation, you might consider why they fly that way. As each bird flaps its wings, it creates uplift for the bird immediately following. The whole flock adds at least 71% greater flying range than if each bird flew on its own. People who share a common direction and sense of community can get where they are going more quickly and easily because they are travelling on the trust of one another.

When a goose falls out of formation, it suddenly feels the drag and resistance of trying to go it alone – and quickly gets back into formation to take advantage of the lifting power of the bird in front. If we have as much sense as a goose, we will stay in formation with those who are headed the same way we are.

When the head goose gets tired, it rotates back in the wind and another goose flies point. Geese honk from behind to encourage those up front to keep up their speed. It is sensible to take turns doing demanding jobs.

Finally – and this is important – when a goose is sick or wounded and falls out of formation, two other geese will land with it to provide help and protection. They stay with the fallen goose until it is able to fly or until it dies. Only then do they take off to fly with another formation or rejoin their group. If we have the sense of a goose, we will stand by each other like that.

‘If you are neutral in situations of injustice, you have chosen the side of the oppressor. If an elephant has its foot on the tail of a mouse and you say you are neutral, the mouse will not appreciate your neutrality.’

Archbishop Desmond Tutu 1931-2021

in the best position to have these meaningful conversations within our organisations. The start of a new year feels like the ideal time to do this.

‘It has been well documented that diverse and inclusive organisations are typically more successful. Whether including more women at a senior level, realising the full potential of Black and minority ethnic workers, or simply being considerate of those with poor mental health.

‘Research by Forbes tells us that decisions made and executed by diverse teams delivered 60% better results and inclusive teams make better business decisions 87% of the time. When you think about it, it’s not rocket science. A diverse group of people will bring a diversity of skills and experiences, different perspectives and, collectively, better problem solving and more ideas.

‘Having a culture where people feel included, appreciated and safe will have a positive impact on productivity. We encourage employers to create safe spaces where everyone can be included and bring as much of themselves to work as they choose. As well as improved productivity and profitability, providing a psychologically safe environment can bring other benefits for organisations, including improved engagement, increased trust and better teamwork.’

Theneedforconversations

Inclusive Employers talk about the importance of ‘safe spaces for difficult conversations’. After 45 years of working in the field of EDI, my worry is that if we don’t have these conversations, we will continue to hold on to myths and unconscious biases, which will influence how we make decisions. I have facilitated many ‘safe space conversations’ with executives and have seen how perspectives can change, as they see the value of doing things because it is the right thing to do and not just to tick boxes.

I have just retired after 24 years as a non legal member of Employment Tribunals. I have seen the consequences of the failure of employers to understand the legal requirements of the Equality Act 2010 and the catastrophic impact of bullying and harassment on employees. There are no winners, despite any financial gains, as reputations are tarnished and people’s pain is displayed in public. It is not easy to ‘play any card’ to get a case to an employment tribunal as there are many hurdles to climb before a case is lodged. My plea to you is to talk and have these difficult conversations. Whilst profit is important, your people are the ones that will take you on the journey to success. Respect, trust and confidence is earned and works both ways. ●

Talkandhavethesedifficult conversations.Whilstprofitis important,yourpeoplearethe onesthatwilltakeyouonthe journeytosuccess.

Measuring the impact

RachaelKinsella Editor-in-Chief,iResearch Services

Across the professional services sector, it is encouraging to see that companies are embracing the benefits that having a truly diverse workforce can bring.

Not only is it the right thing to do, but firms are starting to recognise that a strong business case exists for robust diversity, equity and inclusion (DE&I) practices. From employee engagement, attracting and retaining talent, inspiring innovation, building trust, and shaping and protecting corporate reputation, DE&I can play an important role in driving commercial success.

Rachael Kinsella explains how accountancy firms need to measure the impact of their diversity, equity and inclusion initiatives.

‘As trusted business advisors, it is imperative that the accountancy profession take ownership, lead from the front, and set the standard on DE&I initiatives.

‘There is no room for unconscious bias in today’s society; we must advocate a conscious inclusion mindset, encouraging business leaders to recognise and adapt their own biases to drive forward change.’

Rebecca Hossain AIA Council Member

Consciousinclusion

There is no one-size-fits-all approach to diversity, equity and inclusion. A lack of diversity in the workplace can happen for many reasons, but unconscious bias is high on the list of causes. Unconscious bias results in the continued exclusion of historically marginalised groups of people, often because of their gender, ethnicity, or culture. Whatever the reason, it is crucial to address how bias is perpetuated systemically in corporate cultures and what can be done to address it.

Conscious inclusion is a mindset that actively addresses unconscious biases and puts this thinking into practice. Conscious inclusion in professional services takes place at senior management levels and in the everyday workings of businesses. It requires leadership to recognise – and work on – their own biases that serve to drive the inequities in the corporate status quo. Leaders need to also evaluate how they make decisions around things such as giving promotions and who gets assigned what kinds of projects. Transparency around decision-making is crucial here. It requires decision-makers to consciously interrogate their  selection criteria rather than rely on nebulous notions of who “fits in” – which often relies on unconsciously held biases and excludes minority groups.

Actively prioritising DEI and formalising it into the corporate structure of a business is one way of acting in a consciously inclusive manner. Rather than leaving these issues unspoken, conscious inclusion promotes awareness of DEI and a thoughtful assessment of DEI’s impact throughout the business.

Once DEI policies are in place, work needs to be done to track and measure their effectiveness. Similar to corporate sustainability, which is now as a field solidifying best practices and working to create standardised reporting frameworks, DEI is another area that is finding its feet in terms of effective and consistent reporting.

Currently, there are no standardised frameworks for the industry as a whole when it comes to tracking DEI and measuring outcomes.

One of the key steps for organisations is to define what DEI means to stakeholders when setting benchmarks. Diversity can be defined by many demographics, including geography, race, gender, disability, sexual orientation or professional experience. From there, companies must evaluate the composition of their boards, C-Suite, and workforce using robust parameters. Ideally, a company’s board and management team should reflect the full makeup of its stakeholders to ensure that decisions are made in accordance with the latter’s interests and values.

However, there is a concerning gap emerging between the number of companies that are carrying out DE&I initiatives, and the number which are measuring the success of them.

Accountancyfirmsarelaggingbehind theirlegalcounterparts

For our latest report, ‘A Fairer Future: Equity and Inclusion in Professional Services’, we surveyed 570 respondents working in professional services firms across the UK and the US to find out. While it was good to see that nearly three-quarters (75%) of those surveyed had formal DE&I policies in place, a third (32%) could not provide evidence that their DE&I efforts were working for their employees.

This trend extends to the accountancy sector in spite of the fact that accountancy revolves around numbers, facts and the right data. Only 73% of accountancy firms measure the success of their DEI initiatives, compared to 84% of legal firms.

Accountancy firms are also less active than their law firm counterparts when it comes to running DE&I initiatives. Currently, 73% of accountancy firms surveyed have run a specific DEI initiative across their company in the past six months, in comparison to 86% of legal firms.

WhyisitimportanttomeasureyourDE&I initiatives?

DE&I can be more challenging to measure in comparison to other key performance indicators typical in a business. Similar to corporate sustainability, it is an area still finding its feet in terms of effective and consistent reporting. There is currently no standardised framework for the professional services industry when tracking DE&I and measuring outcomes.

Lotsoftime,moneyandefforttypicallygoes intotheseinitiativessoitisineveryone’s interesttoensurethisiswellspent.

This should not stop accountancy firms from evaluating their individual progress. Similar to how key performance indicators (KPIs) are set out in other areas of the business, leaders at accountancy firms must set clearly defined goals when it comes to creating a more inclusive culture and make a regular, consistent effort to ensure that they are on track to achieve them. These goals could cover a range of aspects, including recruitment, promotions, pay gaps and employee satisfaction.

If firms don’t have these goals in place, there is the danger that your firm could be perceived as being guilty of ‘performative policies,’ where firms can point to having DE&I policies in place and reap the rewards of being perceived as inclusive, but are unable to show evidence that these are really initiatives working. This type of behaviour will only alienate dissatisfied employees even more, and can have serious knock on effects for your business.

Particularly in today’s climate, where employers are facing crises of recruitment and retention, businesses need to genuinely address DE&I issues and be able to show the numbers to back it up.

Peoplerarely‘fit’intoonebox

When setting goals, it’s important to remember that when it comes to DE&I initiatives, one size rarely fits all.

One of the first steps to set benchmarks for DE&I initiatives is to define what it means to stakeholders. Diversity is a vast term and covers a range of different demographics, including geography, race, gender, disability, sexual orientation and professional experience. Firms should be careful when segregating people by their perceived identities or into ‘special interest’ groups. Instead, they should recognise that intersectionality exists and build ways of working around that.

Intersectionality is the practice of recognising intersecting identities and examining how exclusion can be compounded along multiple lines. For example, our report highlights how the gender pay gap is much worse for women coming from Black backgrounds; and while LGTBQ+ people are underrepresented in professional services at senior levels, lesbians are much more affected in terms of representation across all levels, from entry positions upwards.

Thereisanopportunityforaccountancy firmstosetthebar

Accountancy firms are trusted business advisors to companies of all shapes and sizes across regulatory requirements, corporate governance and financial reporting, and there is the potential that improvements to DE&I in their sector can

Howdoesaccountancyrateagainstotherprofessional servicesinitsDEIinitiatives?

Do you measure the success of your DEI initiatives? iResearch Services: A Fairer Future: Equity and Inclusion in PS

Have you run any specific DEI initiatives across your company over the past six months? iResearch Ser vices: A Fairer Future: Equity and Inclusion in PS

be translated across to the businesses that they work with.

Looking ahead, firms need to take a fresh look at how they are evaluating their diversity and inclusion programmes. Lots of time, money and effort typically goes into these initiatives and so it is in everyone’s interest to ensure that this is well spent, reflective of their workforce, and most importantly, that they are having a real positive impact on employees across all levels of the business. ●

‘A fairer future: equity and inclusion in professional services’ is available from iResearch.

Author bio RachaelKinsellaisEditorin-ChiefofiResearch Services,andspecialises inprofessionaland financialservices,business development,marketing andcommunications.

Ready for the year ahead?

Financial planning and analysis has taken a front seat in organisational importance, expanding its area of influence with cross-departmental implications. Accurate, frequent and integrated business planning has become critical as geopolitical tensions, worldwide inflation and supply chain disruption continue to reshape the global economy. Keeping track of these variables can be mindboggling at best, making the accountant’s job even more crucial than ever. A lot of challenges have unfolded in the last twelve months, bringing both challenges and opportunities for better business performance. These are the top seven trends in financial planning and analysis.

1.Adaptabilityisthenewstability

Nothing has taught us how to pivot better than the last three years. In times of great uncertainty, technology will support organisations to quickly adapt to change through its ability to provide easy access to real-time insights. Organisations that have quickly adopted technological solutions and have accelerated digitalisation initiatives are well positioned to take advantage of the time and cost savings these endeavours bring.

While uncertainty is growing, organisations can adapt to these changes in multiple ways

through more frequent forecasts; closer collaboration between the business and financial planning and analysis teams; the ability to model multiple scenarios; and integrating external data sources. In short, adaptability will be the new stability in 2023.

2.Integratedbusinessplanningwillgive risetomoremeaningfulcollaboration

Integrated business planning is the next generation of decisive planning, with technology-driven cross-functional collaboration at its core. The benefit of integrated planning is its ability to align departments, while improving compliance and controls around the planning process.

Integrated planning links financial targets to operational drivers − the activities that each department actually carries out on a day to day basis. Users compare the actual activities with those planned, and drill down below the KPIs to understand why this is happening. Combining performance monitoring with integrated planning means you can rapidly take action. Planning is not rigid. You need self-service modelling to be able to customise planning rules and respond to growth and change.

Financial planning and analysis is evolving beyond finance to integrate information from across the entire organisation and streamline collaboration between people and technology.

DrBjörnSchmidt CFO,Jedox

Dr Björn Schmidt examines the top seven trends impacting upon financial planning and analysis in the year ahead.

Organisations that adopt an integrated approach can create a unified plan activated by all the data that matters in finance, sales, marketing and HR.

3.Simplifiedplanningenablesacultureof decisivenessandconfidence

To lead resilient organisations, decision makers must be confident in their plan so they can act with accuracy and precision. The ability to make decisions with confidence and speed is a goal that many leaders strive to achieve. However, confidence comes not simply from having data, but from a meaningful understanding of what that data means for teams and organisations. No matter how much data you have, simplified planning will be key to achieving decisiveness.

4.Artificialintelligenceiseverywherein theofficeoffinance

We are utterly immersed in AI, and it is already impacting our lives in powerful and exciting ways. A recent study by the Business Application Research Centre (BARC) revealed that in the span of just two years, the percentage of organisations relying on predictive planning technology has increased elevenfold to 44% (see bit.ly/3IEs4G2). From a technical perspective, AI is stable, mature and ready to support the office of finance. From a strategic perspective, it is helping CFOs to provide the sophisticated insights that business leaders and investors are demanding.

The reality for many organisations is a finance operation that concentrates on traditional practices with costly manual processes still in place. Automation is critical to addressing many key finance pain points, particularly if operations are serious about leveraging approaches such as AI to help power their digital business initiatives. That’s why accountants in particular need to drive their own automation agenda, not just across their core planning, budgeting and forecasting activities but also across their endto-end financial planning and analysis activities, including their complex consolidation processes.

5.Technologyisatalentmagnet

According to a study by Future Forum, embracing digital tools is a key component in building connections with employees (see bit. ly/3GSkRjt). People who work at companies they consider technology innovators continue to show higher employee experience scores in all categories, including 1.5x higher scores on productivity, 2x higher scores on a sense of belonging, and 2.5x higher scores on overall satisfaction. Emerging finance professionals want to have the best tools available to them so they are positioned for success. Providing the right

solutions to do that will increase the likelihood of employee engagement for everyone.

6.Financialplanningandanalysis professionalsstrengthentheirrolesas businesspartners

For an organisation to be resilient, it must have adaptable planning capabilities. As a result, financial planning and analysis professionals will play a strategic role in maintaining these capabilities throughout the enterprise. These turbulent times require solutions that enable adaptable planning not only in in finance, but across other organisational functions such as sales, operations, HR and supply chain. Moving from siloed to integrated business planning allows teams to work smarter and collaborate better and more decisively.

According to Gartner, finance leaders cite managing financial information as their key task, with managing business performance a close second (see gtnr.it/3W3qFMt). However, CFOs particularly see a growing need to extend their financial planning and analysis capabilities out across the enterprise, so that budgeting, planning and forecasting activities can include key corporate functions such as sales, supply chain, HR and IT to enable a truly integrated reporting approach. Adopting this broader, more integrated approach means that both finance and business leaders can trust their figures to support real-time decision making.

7.Geopoliticswillcontinuetoexertits influenceoverinputsandplanning

Global organisations need to consider geopolitics, especially given the impact the war in Ukraine continues to have on the global economy. In this environment, countries can take several different approaches to how they will respond and engage on the world stage, and this can impact organisations depending on where they are based and where they conduct business activity. Finance professionals can partner with the broader business to determine which geopolitical scenarios could impact their organisation’s business activities, customers, revenue, office locations, employees, etc. and build these scenarios into their planning process.

Summary

Organisations that are positioned with superior planning capabilities will be able to adapt quickly to the changing business environment, thereby simplifying the overall planning process. Organisations that embrace proper digital solutions will not only have happier employees, but a better chance at business success in 2023. ●

Author bio

Dr.BjörnSchmidtisCFO ofJedox,withrootsintech investmentbankingand venturecapital.

Let’s get fiscal A

ccountancy firms are increasingly recognising the significant potential of providing their clients with an in-house R&D tax claims service. Not only does it offer an additional revenue stream at a time when margins for compliance services are being eroded, but it is a service that clients are actively looking for from someone they consider a trusted advisor.

With the rumoured complexity of the claims process – and with HMRC clamping down on risky and potentially rogue claims – it is understandable that some firms may continue to be daunted by the thought of embarking down this route. However, understanding your clients’ eligibility (whether you’re an accountancy firm or a specialist consultancy) is a straightforward process, as long as you break it down into three simple steps.

HMRCeligibility

Before firms can start to review their client (and/ or prospect) base for potential R&D tax claimants, it’s important to understand the key criteria HMRC stipulates.

1.Theworkisinanareaofscienceor technology

This is the most basic criteria for eligibility. The work must be being carried out in an area of science or technology. If you can’t relate your client’s work to one or more areas of science or technology, it’s not eligible. It’s also important to note that research carried out in an area of social science isn’t eligible.

2.Theworkisstructuredasaproject

HMRC defines an R&D project as a ‘number of activities conducted to a method or plans in order to achieve an advance in science or technology’ It also states that a project ‘may be part of a larger commercial project’ So what does this mean for your client and their tax claim? Essentially, your client must have planned their work and have set out to achieve an advance, rather than just doing day to day work and stumbling across it.

MikeDean ManagingDirector, WhisperClaims

Mike Dean considers the issues involved in understanding R&D tax claim eligibility and shows how three simple steps can make it more straightforward.

3.Theworkseekstomakeanadvancein scienceortechnology

So what is an advance in science or technology?

It’s as simple as it sounds – the outcome of the project represents an increase in overall knowledge, however small, in an area of science or technology. However, applying this to the work done by a company can be more complicated. HMRC lists four areas of activity in which a company might seek to make an advance and are therefore eligible for R&D tax relief:

● work that seeks to extend overall knowledge in a field of science or technology;

● work that seeks to create a process, material, device, product or service which incorporates an increase in overall knowledge or capability in a field of science or technology;

● work that seeks to make an improvement to an existing process through scientific or technological change; and

● work that seeks to duplicate an existing material, device, product or service in an improved way using science or technology.

4.Thecompanyencounteredtechnological uncertaintyduringtheproject

Simply put, a project has technological uncertainty if your client was unsure at the outset whether it was technically possible to achieve the desired end result. This usually involves some level of both commercial and financial risk, and experienced staff scratching their heads!

5.Thecompanyusedcompetent professionalsintheareaofscienceor technologytocarryoutthework

This is as straightforward as it sounds. HMRC wants to be sure that the project was challenging for people with qualifications and experience in the area of science or technology!

Step1:Reviewtheclientbase

The first step in establishing a claims review service is to undertake an eligibility review. There are three distinct categories of companies that a firm needs to consider – and each involve quite distinct ways of identifying eligibility.

Category 1: Clients and prospects already claiming R&D tax relief: Clients that are currently claiming are just that: companies that have made a claim for a recent financial year, and for whom the most recent claim year is still available. This is by far the easiest category to assess for eligibility. The main issues to think about here are:

● Who prepared their most recent claim? Your company or a third-party?

● If the claim was prepared by a third-party, are you happy with the eligibility of the claim?

Beforefirmscan starttoreview theirclientbase forpotential R&Dclaimants, it’simportant tounderstand thekeycriteria HMRCstipuates.

RESEARCH AND DEVELOPMENT

● Was the recent work claimed for ongoing, or a one-off?

Category 2: Clients that have claimed in the past but are not currently claiming: It is important to understand why your clients are in this position. In some cases, companies will know that they are not undertaking eligible R&D; in others, they may feel that previous claims were too small to justify the work involved in preparing the claim (note that automated R&D tax claims software can help here). It may be that there have been changes in the company structure or management, and making a claim for R&D tax relief has dropped off their radar. However, it can also be the case that a company had a bad experience with a third-party provider during their last claim.

In general, once you’ve identified which of your clients fall into this group, it’s a fairly simple process to assess whether they’re likely to be eligible. Having claimed in the past, these companies are also likely to have some understanding of the types of work that they can claim for, and so should be able to work with you to ascertain whether they’ve undertaken any of that type of work more recently.

Category 3: Clients that have never claimed R&D tax relief: This category includes prospective clients for whom you don’t hold information about their R&D claim history. Assessing these clients for eligibility isn’t easy but there are ways to use information you already hold to make it a lot easier. The aim of this analysis is to enable you to focus your efforts on the clients most likely to be able to make a claim for R&D tax relief.

Ways to achieve this initial analysis include:

● SIC (standard industrial classification) code segmentation: how likely it is that a company operating in that sector would be carrying out eligible R&D?; and

● identifying indicators of R&D in annual accounts, such as grants received, large subcontractor costs, increase in raw materials spending and costs linked to patent applications.

Step2:Tacklingobviousandlessobvious cases

Obvious R&D cases will typically tick most or all of HMRC’s eligibility criteria: for example, they operate in a technical sector; employ technical staff; have costs attributed to R&D in their accounts; have made successful R&D claims in the past; or are a technical start-up.

However, companies with large R&D costs and obvious eligibility will have found themselves regularly targeted by third party R&D consultancies, potentially leading to R&D sales ‘fatigue’. The key here is to emphasise how your role as a trusted

advisor can provide them with a more tailored and appropriate service than third parties, whether this is through your fee structure or the way you work with them to prepare the claim.

A less obvious R&D case will usually tick one or two of the boxes described above, but it may be difficult to make a definite decision about the company’s eligibility without talking to its management team. It’s also important to manage your client’s expectations – you don’t want to lead a company to believe that they will be able to claim R&D tax relief before establishing eligibility.

However, again, your position as the company’s accountant can be incredibly valuable. You’re already in regular contact with the client and will be able to ask questions about R&D without having to sell services upfront.

Step3:Assessrisk

In terms of R&D tax relief claims, the eligibility of a claim and the risk of the claim being investigated by HMRC are not directly related. In fact, the risk of a claim being investigated by HMRC has a lot more to do with certain other factors than eligibility, which is why it is important to think about the risk of submitting a claim alongside assessing its overall eligibility. However, if you’re not convinced about the eligibility of a claim, you should never submit the claim to HMRC, regardless of how low you feel the risk is!

The purpose of the risk assessment is to allow you to proactively mitigate the risks inherent in any eligible claim, and to prepare yourself and the client for HMRC’s response in the case of highrisk claims. The most common risk factors that may lead to HMRC investigating a claim include: company sector; ratio of claim size to company turnover; company age; grants; complications from company structure; and the amount of technical narrative included within the project details.

Having access to dedicated R&D tax claims software that includes a risk assessment, especially if it is backed by a claims support team, can be helpful in supporting you and your clients in this final step.

Conclusion

These steps can steer you in the right direction and give you confidence that your claim is robust before submission to HMRC. Understanding R&D tax claims eligibility and providing clients with a trusted R&D tax service is readily achievable and doesn’t need to be a complex or costly undertaking. With companies of all sizes actively seeking support from their accountants to fulfil this role, it is a potential revenue stream and valueadded service that cannot be ignored, and with the right support isn’t as challenging to deliver as you might have imagined. ●

Author bio MikeDeanisManaging DirectorofWhisperClaims andispassionateabout thedigitisationofbusiness processes.

Steve Collings explains when paragraphs relating to Emphasis of Matter and Material Uncertainties Related to Going Concern paragraphs should be included in auditor’s reports.

Clearing up the confusion W

hen drafting auditors’ reports, the auditor must take care to ensure that not only do they comply with the International Standards on Auditing (ISAs) governing reporting issues (i.e. the ISAs in the 700 series), but also that any additional paragraphs included in the auditor’s report are appropriate and technically correct.

Seemingly, there is a lot of confusion over when certain additional paragraphs should be included within an auditor’s report and so this article will tackle two of the most common paragraphs which appear to be the ‘culprits’, being:

● Emphasis of Matter paragraphs; and

● Material Uncertainties Related to Going Concern paragraphs.

The aim of this article is to clear up any ambiguity as to when such paragraphs should be included in an auditor’s report and when they should not.

EmphasisofMatterparagraphs

Emphasis of Matter (EoM) paragraphs and Other Matter (OM) paragraphs are dealt with in ISA 706

Emphasis of Matter Paragraphs and Other

Matter Paragraphs in the Independent Auditor’s

SteveCollings Partner,LeavittWalmsleyAssociatesLtd

Example:TheincorrectuseofanEmphasisofMatterparagraph

The audit of Sunnie Ltd for the year ended 31 July 2022 revealed a number of misstatements which the auditor has concluded as being immaterial both in isolation and in the aggregate. The directors decided not to adjust the financial statements on the grounds that the misstatements were immaterial. The audit engagement partner has placed the following comment on the completion section of the audit file:

To err on the side of caution, I deem an EoM paragraph to be appropriate in these circumstances. When drafting the auditor’s report, I suggest we refer to there being a number of unadjusted misstatements which are immaterial in isolation and in the aggregate and confirm that our opinion is not modified in respect of these misstatements.

There are four fundamentally flawed points to the partner’s logic in including an EoM paragraph within the auditor’s report:

● An EoM paragraph can only be used when a matter has been adequately disclosed in the financial statements as it must cross-refer the user to the relevant disclosure note number.

● In this scenario, there is no disclosure note that can be cross-referred to as the company will not have made any disclosures concerning immaterial misstatements that remain uncorrected.

● There is no need to include an EOM paragraph in the auditor’s report in respect of immaterial misstatements because the mere fact that they are immaterial means they do not warrant the attention of shareholders.

● There would be no need to confirm that the audit opinion is not modified in respect of immaterial misstatements as an auditor’s opinion would never be qualified for misstatements that are immaterial in isolation and in the aggregate.

Report. There is often confusion surrounding the appropriateness of an EoM paragraph within the auditor’s report. An EoM paragraph is defined as:

‘A paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements.’

At the outset, it is worth noting that an EoM paragraph does not qualify the auditor’s opinion in any way. It is used to refer to a matter which has been adequately presented or disclosed in the financial statements by the directors. When the auditor concludes that these matters are of such fundamental importance to users’ understanding, the auditor draws attention to this matter through an EoM paragraph in their report.

Not every auditor’s report will contain an EoM paragraph because not every matter disclosed in the financial statements will be of fundamental importance to users’ understanding. What is, and is not, fundamental will be a matter of professional judgment for the auditor. However, examples of fundamental matters may include the following (note, the list below is not comprehensive):

● The client’s financial statements have been prepared on a basis other than the going concern basis.

● There is an uncertainty relating to the future outcome of a legal case or regulatory action.

● A significant post balance sheet event (a subsequent event) occurs between the balance sheet date and the date of the auditor’s report.

● The entity early adopts an accounting standard (or an amendment to a standard).

● A major catastrophe has occurred that has had a significant effect on the entity’s financial position.

● Corresponding figures have been restated.

● The financial statements have been reissued and the auditor has provided an amended auditor’s report.

ISA 706 states:

‘When the auditor includes an Emphasis of Matter paragraph in the auditor’s report, the auditor shall:

a. include the paragraph within a separate section of the auditor’s report with an appropriate heading that includes the term “Emphasis of Matter”;

b. include in the paragraph a clear reference to the matter being emphasised and to where relevant disclosures that fully describe the matter can be found in the financial statements. The paragraph shall refer only to information presented or disclosed in the financial statements; and

c. indicate that the auditor’s opinion is not modified in respect of the matter emphasised.’

MaterialUncertaintyRelatedtoGoing Concernparagraphs

The auditor’s responsibilities in respect of going concern are dealt with in ISA 570 Going Concern (and ISA (UK) 570 Going Concern), which also covers some aspects concerning reporting.

Going concern has always been an important issue for auditors, but in recent years its importance has moved up the ranks in light of the global pandemic and, more recently, the effect of inflation.

Where management have concluded that there is a material uncertainty related to going concern and that uncertainty has been adequately disclosed in the financial statements, the auditor must make reference to the relevant disclosure note in their auditor’s report. This is done by way of a Material Uncertainty Related to Going Concern (MURGC) paragraph. ISA 570 (including ISA (UK) 570) states:

‘If appropriate disclosure about the material uncertainty related to going concern is made

Goingconcern hasalwaysbeen animportant issuefor auditors,but itsimportance hasmovedup theranksin thelightofthe globalpandemic andtheeffectof inflation.

in the financial statements, the auditor shall express an unmodified opinion and the auditor’s report shall include a separate section under the heading “Material Uncertainty Related to Going Concern” to:

a. draw attention to the note in the financial statements that discloses the matters set out in paragraph 19; and

b. state that these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern and that the auditor’s report is not modified in respect of the matter.’

ISA (UK) 570, para 22 also contains subparagraph (c) which states:

c. For entities that are required, and those that choose voluntarily, to report on how they have applied the UK Corporate Governance Code, or to explain why they have not, a statement that the auditor has nothing to add or draw attention to in respect of the directors’ identification in the financial statements of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements.

If management inadequately disclose material uncertainties related to going concern (or fail to make any disclosures at all) and refuse to resolve the issue, the auditor will not include a MURGC paragraph. Instead, the auditor will modify their audit opinion accordingly.

Whatisgoingwrong?

It seems that many auditors’ reports continue to include cross-references to adequate disclosures of going concern uncertainties within an EoM paragraph, which is technically incorrect. While the MURGC paragraph acts in much the same way as an EoM paragraph (in that it cross-references to the relevant disclosure note in the financial statements and contains a confirmation that the auditor’s opinion is not modified in respect of the matter), it is not the same thing. As going concern is such a fundamental concept, any material uncertainties need to be highlighted and the way to do that through the auditor’s report is to use a MURGC paragraph.

There have also been instances where an audit client has made adequate disclosure of a material uncertainty related to going concern, but no MURGC paragraph has been included in the auditor’s report. Indeed, some firms continue to include the ‘Conclusions related to going concern’ paragraph, stating that based on the work performed, the auditor has not identified

Example:ThecorrectuseofanEmphasisofMatterparagraph

The audit of the financial statements of Crusader Ltd for the year ended 31 July 2022 has drawn to a close and the auditor’s report is being drafted. During the audit, the audit senior was made aware that one of the client’s bonded warehouses had suffered a fire that had destroyed a large amount of the client’s inventory. The fire occurred in mid-August 2022 and hence the inventory has not been written down to estimated selling price (net realisable value) in the 31 July 2022 financial statements as the event is a non-adjusting post balance sheet event.

The auditor has concluded that adequate disclosure has been made in the financial statements concerning this event and the event is fundamental to the users’ understanding. In this scenario, an EoM paragraph would be appropriate and may be drafted as follows:

Emphasis of Matter:

We draw attention to note 34 of the financial statements, which describes the effects of a fire at the premises of a third-party warehouse provider. Our opinion is not modified in respect of this matter.

In this example, the EoM paragraph has cross-referred to the relevant disclosure that adequately describes the non-adjusting event. It also correctly clarifies that the auditor’s opinion is not modified in respect of the matter being emphasised.

Example:CorrectuseofaMaterialUncertaintyRelatedto GoingConcernparagraph

We draw your attention to note 23 which indicates that the company must retender for a large contract in June 2022. If the company were to fail to win the bid, the loss of the contract may have a detrimental impact on the company’s operations and cash flows. As stated in note 23, these events or conditions along with other matters as set forth in note 23 indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

any material uncertainties related to events or conditions that, individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for the foreseeable future. This means the auditor’s report is inconsistent with the financial statements and indicates a lack of attention on the part of the auditor, or a lack of awareness as to the requirements of ISA 570 or ISA (UK) 570.

Conclusion

Auditors must keep in mind that an EoM paragraph should only be used when an issue is fundamental to users’ understanding. It is always worthwhile documenting the reasons on the audit file as to why the auditor deems a matter as being fundamental and hence why an EoM paragraph has been included in the auditor’s report. Never use an EoM paragraph as any sort of attempt to modify the auditor’s opinion. Keep in mind the requirements of ISA 706 (ISA (UK) 706) specifically require the paragraph to confirm that the auditor’s opinion is not modified in respect of the matter(s) being emphasised. ●

Author bio SteveCollingsistheaudit andtechnicalpartnerat LeavittWalmsleyAssociates Ltd.

Feature event: Ethics Beyond Compliance

Date: 15 March 2023

Time: 10.00 – 11.00

Speaker: Anna Faherty

Join us on 15 March as guest speaker Anna Faherty introduces the concept and meaning of ethics, explains why ethical issues often sit at the heart of conflict and shares practical advice for how best to resolve ethical dilemmas in the workplace.

Integrity and professionalism are core principles of the accounting profession, yet acting ethically isn’t always a straightforward matter of compliance.

While all AIA members are bound by AIA’s Code of Ethics, ethics pervade every aspect of a business, from supply chains to recruitment practices. Maintaining ethical standards in all aspects of your role can be challenging, because the working world is full of grey areas and lose-lose choices. Plus, our own individual ethics are influenced by our environment and personal beliefs, which means we may not always agree with our colleagues or clients.

This webinar introduces the concept and meaning of ethics, explains why ethical issues often sit at the heart of conflict and shares practical advice for how best to resolve ethical dilemmas in the workplace. You’ll learn how to identify an ethical issue, understand why people end up acting ethically and consider the role culture plays in ethical practice.

Anna Faherty

Anna is the author of a number of practical online courses for accountants, covering subjects as diverse as creativity and innovation, remote working, and communication and presentation skills. Anna has a background in commercial publishing and now runs her own consultancy, working with clients across the media, culture and heritage sectors. She brings a creative, audience-focused and outcome-based approach to every project she works on – from copywriting and content creation to innovation and strategic planning. Anna teaches on a number of professional masters programmes and is currently delivering a module on Innovation at University of the Arts, London.

OTHEREVENTS

Irish Tax Update

Date: 22 February 2023

Time: 11.30 – 12.30

Speaker: Gary O’Mahony

A review of recent Irish tax developments, including revenue updates, tax changes in Finance Act 2022, inheritance tax issues and more. The webinar will cover: the main tax changes in Finance Act 2022 of interest to advisors for clients; recent revenue updates; items of interest in recent eBriefs and tax appeal decisions; and inheritance tax issues in Irish/UK estates that frequently pop up where there are assets in both jurisdictions

Corporate Governance in Malaysia

Date: 7 March 2023

Time: 18.00 – 19.00

Speaker: Dr Lau Chee Kwong

This webinar presents a conceptual and practical perspective to managing and reporting corporate governance practices for businesses., which will help participants evaluate the basic concepts and practices of corporate governance.

Cyber Security Risk Management

Date: 10 March 2023

Time: 10.30 – 11.30

Speaker: Steven Cockcroft

A roadmap to secure business, improved compliance and increased stakeholder confidence. The session will introduce participants to:

● cybersecurity challenges faced by SMBs;

● available tools to help address those challenges;

● common cybersecurity frameworks and standards;

● risk management;

● the concept of ‘appropriate security;

● good practice cybersecurity controls for SMBs; and

● a roadmap for business growth.

Spring Budget 2023

Date: 20 March 2023

Time: 10.30 – 11.30

Speaker: Tim Keeley

A webinar covering the key announcements in the Spring budget, together with their economic impact.

Payroll Benefits: The Tax Implications

Date: 23 March 2023

Time: 11.30 – 12.30

Speaker: Mathew Akrigg

A webinar covering the most common benefits offered through workplaces and examine the impacts you need to be aware of to process accurate and compliant payrolls. It will cover payroll’s role in administering benefits as it continues to grow, and with that comes additional complication, along with pension administration, business mileage, home working equipment and any number of workplace benefit schemes.

Capital Allowances: Super After Super Deduction

Date: 27 April

Time: 11.30-12.30

Speaker: Callum Byers

A webinar explaining why capital allowances are more important than ever, despite the super deduction coming to an end, as well as providing an overview on all things capital allowances.

IPSASB confirms its role in advancing public sector sustainability reporting

Thethreatstotheworldandits citizensfromclimatechange arewellpublicised.Yetdespite significantgovernmentinfluence overtheglobaleconomy,there isnointernationallyrecognised publicsectorreportingframework toguidehowtheymeasureand reporttheircriticalcontributions toaddressingtheglobalclimate emergency.Reportingonclimate changeisoneofthemost importantissuesinsustainability reporting,whichalsoencompasses environmental,socialand governanceissues.

AtitsDecembermeeting,in lightoftheurgencyofthisissue, theInternationalPublicSector AccountingStandardsBoard (IPSASB)decidedtocommence thescopingofthreepotential publicsectorspecificsustainability reportingprojects,pending securingtheresourcesneeded tobeginguidancedevelopment. ThisdecisionbuildsonIPSASB’s 25yearsofpublicsectorstandard settingexperience,aswellasthe strongglobalstakeholdersupport

INTERNATIONAL

IFACreleasesnew implementationtoolforauditors onidentifyingandassessingrisks ofmaterialmisstatement

The International Federation of Accountants (IFAC) has released a new resource, ‘ The risk identification and assessment process: tips on implementing ISA 315 (Revised 2019) ’. The tool helps auditors to implement the International Auditing and Assurance Standards Board’s (IAASB) International Standard on Auditing (ISA) 315 (Revised 2019), ‘Identifying and assessing the risks of material misstatement’, which is effective for audits of financial statements for periods beginning on or after 15 December 2021.

The implementation tool provides

fortheproposalsinitsConsultation Paper,‘AdvancingPublicSector SustainabilityReporting’.

‘Publicsector-specific sustainabilityreportingguidance wouldencouragetransparency, allowinggovernmentstobeheld accountableforthelong-term impactsoftheirinterventions,and enablingbetter-informeddecision making,’saidIanCarruthers, IPSASBChair.‘Thefeedback we’vereceivedfromstakeholders aroundtheworldisclear:the publicsectorneedsitsownspecific sustainabilityreportingframework andtheIPSASBshouldleadits development.Butinadditiontoour existingexpertise,itisafactthat wewillneedadditionalsupport, bothfinancialandotherwise,from theglobalcommunitybeforewe cantakeonthedevelopmentof globalguidancethatwouldequip thepublicsectorwiththetools necessarytoreportonclimate changeandothersustainability issues.’

TheIPSASB’simmediateaction willbetoestablishaSustainability

an overview of core concepts and explains new and previously existing requirements. It also includes examples and emphasises the scalability of the standard with a focus on less complex entities. The tool does not replace the need to read ISA 315 (Revised 2019), including its application and other explanatory material.

The resource is based on Chartered Professional Accountants of Canada’s (CPA Canada) ‘ Implementation tool for auditors’ and follows the release earlier this year of IFAC’s ‘Auditing accounting estimates: ISA 540 (Revised) implementation tool’. These tools support efforts to improve audit quality globally and, more broadly, international standards’ adoption and implementation.

Additional guidance and resources are available on the dedicated Supporting International Standards

TaskForcetoleadthisfirstcritical phaseofresearchandscoping.The Board’sprioritisedresearchtopics are:

● GeneralRequirementsfor DisclosureofSustainabilityrelatedFinancialInformation;

● Climate-RelatedDisclosures;and

● NaturalResources–Non-FinancialDisclosures(in parallelwiththedevelopment offinancialreportingguidance proposedinitsConsultation Paper‘NaturalResources’).

Resourcesareneededtosupport theIPSASB’sprogrammeofactivity andstakeholderengagement,and tobeginguidancedevelopment. Tocontributefinancialorother supporttotheIPSASBforthe developmentofglobalpublic sectorspecificsustainability reportingguidance,please emailRossSmith,IPSASBProgram andTechnicalDirector (rosssmith@ipsasb.org) orJamesGunn,Managing Director,ProfessionalStandards (jamesgunn@profstds.org).

TheIESBAreleasesupdateon sustainabilitywork

The International Ethics Standards Board for Accountants (IESBA) has released ‘Continuing with the development of global ethics and independence standards for sustainability reporting and assurance ,’ a publication providing an overview of the sustainability-related decisions made by the Board and how those decisions will shape its work in 2023 and beyond.

Market demand for sustainability information has risen substantially and rapidly in recent years, as there is a growing public expectation that corporate citizens must play their part in securing a sustainable future. As such,

section of the IFAC Knowledge Gateway.

TECHNICAL

sustainability information is increasingly being used to support capital allocation or other decisions by investors, customers, workers, government agencies and other stakeholders.

In June 2022, the IESBA took timely action to develop fit-forpurpose, globally applicable ethics and independence standards as a critical part of the regulatory infrastructure to support transparent, relevant and trustworthy sustainability reporting. This recognises the foundational role of ethics and independence in the production, reporting and assurance of sustainability information. Importantly, this strategic commitment sets up the IESBA’s ethics and independence standards as the third pillar to trustworthy sustainability reporting and assurance, alongside the standards being developed by the International Sustainability Standards Board (ISSB) and the International Auditing and Assurance Standards Board (IAASB).

As part of the project, the IESBA will determine the format, structure and packaging of the ethics and independence standards for sustainability assurance so they not only set a high ethics bar but also can be adopted and applied by assurance providers from any profession.

The projects will be carried forward by two separate task forces: the Sustainability Task Force; and the Experts Task Force. The IESBA has also established a Sustainability Coordination Committee (SCC), which will be responsible for overseeing the coordination of the work on the Sustainability project and between the Sustainability and Experts projects. The SCC will also engage in timely coordination and engagement with IOSCO, IAASB, ISSB and other key stakeholders, including the users of sustainability information.

The IESBA has been proactively engaging in outreach, collecting views and insights from diverse stakeholders on the emerging ethics and independence issues relating to sustainability reporting and assurance. To make further timely progress, the IESBA will hold a series of four global roundtables in March and April 2023 in Europe, Middle East and Africa; Asia; Oceania; and the Americas.

The IESBA will be seeking feedback on key issues from a broad range of stakeholders, including investors and other users of sustainability information; those charged with governance; regulators and oversight bodies; preparers; national standard setters; sustainability assurance providers from within and outside the accountancy profession; and those in charge of the adoption, implementation, and enforcement of the IESBA’s standards.

UKANDIRELAND

FRCpublishesfeedback statementforARGAfunding consultation

The Financial Reporting Council (FRC) has issued a Feedback Statement following a consultation on the principles on which the Audit, Reporting and Governance Authority (ARGA)’s statutory funding arrangements should be based. The statement confirms the proposed approach, noting respondents’ views on the importance of ARGA’s accountability and transparency in setting its annual levies.

It proposed that ARGA’s funding arrangements should be based on three core principles. The arrangements should be:

● fair, funded by market participants, that is persons or bodies to which ARGA’s activities directly relate or which otherwise benefit from those activities;

● transparent, with information made publicly available on the costs and activities being funded by levy payers, and the basis for the apportionment model; and

● proportionate, to avoid any significant adverse impact on growth and competition, the levy contributions should consider factors such as the size and type of body being levied.

Stakeholders generally supported the proposed core principles. However, several respondents questioned whether they were sufficient, and suggested that accountability was

equally important. In setting the annual budget and funding requirement, ARGA should justify the resources that are sought, as well as the allocation of the levies to the funding groups.

Some respondents commented that they would look for a reasonable level of detail from ARGA when it invoiced them: to ensure transparency, the invoices should explain the basis for the levies in terms relevant to each funding group. Response The FRC confirms that ARGA’s expenditure and funding arrangements will operate in line with the Government’s Managing Public Money principles and have regard to the Regulators’ Code.

ARGA will be subject to oversight as public body and partner body of the Department of Business, Energy and Industrial Strategy (BEIS).

IAASAissuesrevisedPolicyPaper onpublicationofinformation regardingitsfinancialreporting supervisionactivities

The Irish Auditing and Accounting Supervisory Authority (IAASA) has published its revised Policy Paper Publication of information regarding IAASA’s financial reporting supervision activities. This provides for transparency by IAASA in highlighting its financial reporting supervision activities including publication of:

● significant financial reporting decisions;

● financial statement examinations undertaken and summary of outcomes; and

● thematic papers covering topical financial reporting areas.

The revised Policy Paper – which was last updated in 2016 – reflects, to the extent deemed appropriate, the views of stakeholders provided in response to a consultation process. Comment letters were received from three respondents.

In determining the extent to which it publishes information on its financial reporting supervision activities, IAASA seeks to strike a balance between transparency and confidentiality.

IAASA, as a European accounting enforcer, is informed by the publication

practices of other EU accounting enforcers. Publication practices vary extensively across Europe with some member states publishing little if any information, while other member states publish all correspondence between the enforcer and the issuer. IAASA believes that the revised Policy Paper strikes an appropriate balance and represents best practice.

It is IAASA’s intention to periodically review the Policy Paper and may amend the Policy based on experience gained from the publication of its financial reporting supervision activities and to ensure an appropriate level of transparency with regard to those activities.

EUROPE

EuropeanSupervisoryAuthorities identifygoodpracticesfor financialeducationinitiativeson scams,fraudandcybersecurity

The three European Supervisory Authorities (ESAs) – the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA) – have published a joint thematic report on national financial education initiatives on digitalisation, with a focus on cybersecurity, scams and fraud. The report identifies good practices that national competent authorities and other public entities can follow when designing and implementing their financial education initiatives.

Access to digital channels and digital infrastructure has become a prerequisite for consumers to make use of financial services, and this trend has intensified in the context of the Covid-19 pandemic. Against this backdrop, the three ESAs highlight the fact that a lack of financial literacy and unfamiliarity with digital technologies can increasingly lead to financial vulnerability and exclusion of consumers.

More specifically, without appropriate digital financial skills and the ability to ensure their cybersecurity,

consumers are more at risk of becoming victims of scams and fraud.

To address this issue, the ESAs have identified 12 good practices that can help national competent authorities (NCAs) and other public entities to increase the reach and effectiveness of their financial education initiatives and thereby help improve consumers’ digital financial literacy. Amongst others, the ESAs consider it good practice to:

● publish a blacklist of fraudulent providers to help digitally literate consumers properly assess the financial risks arising from financial products and services linked to new technologies, such as crypto assets;

● reach technology-averse consumers not only through digital, but also non-digital, channels and teach them how to use digital tools to access financial services safely;

● work closely with teachers to understand their specific educational needs, as well as help them develop and test adequate educational material, so that they can serve as multipliers of students’ financial education;

● package financial education initiatives appropriately to increase their reach, for instance by including entertaining elements, such as games: this can help consumers to acquire relevant knowledge, as well as some practical experience in handling financial matters, thereby creating a deeper and more appealing learning experience; and

● apply search engine optimisation to ensure that NCAs’ financial education websites appear among the first search results when consumers look for information on specific financial subjects.

UNITEDSTATES

FASBdeferssunsetdateof referenceratereformguidance

The Financial Accounting Standards Board ( FASB ) has issued an Accounting Standards Update (ASU) that extends the period of time preparers can utilise the reference rate reform relief guidance.

In 2020, the Board issued ‘Accounting Standards Update No. 2020-04 , Reference Rate Reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting’, which provides optional guidance to ease the potential burden in accounting for (or recognising the effects of) reference rate reform on financial reporting.

The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the Board included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to 30 June 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from 31 December 2022 to 31 December 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

FASBimprovescertaintransition requirementsinlong-duration insuranceguidance

The Financial Accounting Standards Board ( FASB ) has issued an Accounting Standards Update (ASU) that amends transition guidance in ‘Accounting Standards Update No. 2018-12 , Financial Services— Insurance (Topic 944): Targeted improvements to the accounting for long-duration contracts (LDTI)’, for contracts that have been derecognised because of a sale or disposal of individual or a group of contracts or legal entities before the LDTI effective date.

In August 2018, the FASB issued ASU 2018-12 to improve, simplify and enhance the financial reporting requirements for long-duration contracts issued by insurance entities. The amendments in Update 2018-12 require an insurance entity to apply a retrospective transition method as of the beginning of the earliest period presented or the beginning of the prior

TECHNICAL

fiscal year if early application is elected.

The FASB received feedback that applying the LDTI guidance to contracts that were derecognised because of a sale or disposal of individual or a group of contracts or legal entities before the LDTI effective date likely would not provide decision-useful information to investors and other allocators of capital and may result in significant operability challenges for insurance entities to apply the guidance.

To address this issue, the ASU amends the LDTI transition guidance to allow an insurance entity to make an accounting policy election to exclude certain contracts or legal entities from applying the LDTI guidance when, as of the LDTI effective date:

● the insurance contracts have been derecognised because of a sale or disposal; and

● the insurance entity has no significant continuing involvement with the derecognized contracts.

ASIAPACIFIC

ACRAhasissueditsfourth FinancialReportingSurveillance Programme(FRSP)report

The Accounting and Corporate Regulatory Authority (ACRA) has issued its fourth Financial Reporting Surveillance Programme (FRSP) report, which noted that knowledge gap and insufficient due diligence remain the main root causes contributing to material non-compliances with accounting standards. Another root cause was the lack of action taken on issues raised by auditors.

ACRA reviews the financial statements of Singapore-incorporated companies for compliance with the accounting standards in Singapore and publishes the findings to help companies avoid the common pitfalls and improve their financial reporting. This latest FRSP report covers the financial statements reviewed between 1 April 2020 to 31 March 2022. Of the 33 sets of financial statements (comprising 27 listed companies and 6 non-listed companies) reviewed, ACRA found a total of 23 material non-

compliance with accounting standards in 12 financial statements.

The 23 material non-compliances were in areas such as business valuations, impairment assessments, presentation in cash flow statement, consolidation and equity accounting. Through engagements with the companies, ACRA observed that the material non-compliances were due to the following factors:

● a knowledge gap within the finance teams, Chief Financial Officers (CFOs) and Audit Committees (ACs), resulting in incorrect application of accounting standards;

● insufficient due diligence by the finance teams, CFOs and ACs on transactions that were neither complex nor required judgement; and

● a lack of action taken on issues raised by auditors. This includes failure to act upon the areas qualified or disclaimed by the statutory auditors and accepting modified audit reports in consecutive years, instead of taking the appropriate steps to rectify the issues and resolve non-compliances with the accounting standards.

Apart from the efforts made to recruit qualified persons, more can be done to strengthen the competency of the financial reporting team. With evolving business models and more complex transactions, it is critical for preparers to understand the substance of the transactions and the principles behind the accounting standards in order to correctly apply the relevant accounting standards to the transactions.

The companies should invest in training to equip and upskill the finance teams, including CFOs and ACs, to bridge any competency gaps. Where necessary, the Board can support them by providing access to experts and consultants for advice on more complex matters.

Statutory auditors play an important role in financial reporting. They can assist the ACs, CFOs and finance teams by highlighting accounting and auditing issues early. In such situations, the ACs should guide the CFOs and finance teams to resolve the statutory auditor’s

concerns, so as to avoid the issuance of modified audit reports. The Board should also apply rigour in reviewing and approving the financial statements, to ensure that they provide a true and fair view of the financial position and performance of the company.

MASrevisestheCodeof CorporateGovernancetoreflect independentdirectortenurelimit andmandatoryrenumeration disclosurefordirectorsandCEOs

The Monetary Authority of Singapore (MAS) has introduced amendments to the Code of Corporate Governance to reflect SGX RegCo’s Listing Rule changes, so as to introduce a nineyear tenure limit for independent directors and mandatory remuneration disclosure for each individual director and chief executive officer (CEO).

These revisions to the Code and Listing Rules are in line with the recommendations made by the Corporate Governance Advisory Committee (CGAC) on 13 September 2022, which were in response to the review of SGX-listed companies’ corporate governance disclosures released by SGX RegCo on the same day.

MAS will amend the Notice to All Holders of a Capital Markets Services Licence for Real Estate Investment Trust Management (REIT Managers) ( MAS Notice SFA 04-N14) to reflect the change in remuneration disclosure requirements for directors and CEOs of REIT Managers to mandatory from comply or explain. The amendments will take effect on 1 January 2025, in alignment with the implementation of the SGX Listing Rules requirement.

Mr Lim Tuang Lee, Assistant Managing Director (Capital Markets), MAS, said, ‘High standards of corporate governance, characterised by strong accountability and transparency, are critical in upholding investor confidence in our capital markets. The latest enhancements, which are in line with global best practices, are important steps to further strengthen director independence, encourage board renewal and improve market transparency.’

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